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 user 2007-03-12 at 10:17:00 am Views: 41
  • #17497

    For Better Or Worse, Dell Could Be Stuck With Its Printing Business
    IBM recently looked at the landscape of the printing industry, added up the numbers and decided to just get out of the printer business altogether.
    Hardware margins are dropping, market patterns are changing and, IBM executives said, it just didn’t fit in with the company’s long-term strategic goals.Dell may find itself in the same position as IBM — possibly even worse because it’s not even clear what, if any, profit Dell has made from its printer business since jumping in a few years ago — but for Dell getting out of the business like IBM may not be possible.

    I spoke yesterday with Stewart Krentzman, CEO of Oki Data Americas, a printer company that is growing in the U.S. Krentzman likened Dell’s options to his time as a top executive at packaged goods manufacturer Unilever (maker of products like hand soap and Lipton Tea.) During that time, he recalled, there were some products that were very profitable for his company and some that only lost money. Yet he needed all of it — the good and the bad — to maintain a full product lineup and maintain a healthy reach into the consumer space.Even if Dell isn’t seeing a profit from printers, it still needs printers to keep some of its PC customers happy. For example, Dell sells lots and lots of PCs and servers to Boeing. But Boeing also needs its printer fleet managed. So Dell partnered up with Lexmark and put together a print managed services deal for the aerospace giant that A) keeps it happy and B) prevents it from signing up Hewlett-Packard for its PCs, servers, printers and print management.But not every customer is Boeing. A little more than a year ago, then-Dell CFO James Schneider spoke at the Raymond James IT Supply Chain conference in New York and admitted the company made a mistake. It had sold so many printers so cheaply, or simply given them away for free with PC bundles, that the customers getting them didn’t value them, need them or use them. The upshot: Dell dramatically gained market share — to over 5 percent of the total market in just a couple of years — but a large chunk of its printer customer base weren’t buying consumables or going back for more printers.Since last year, Dell has been trying to narrow its printer product line to higher-margin devices for higher-end enterprises. It’s hard to tell if that’s been working out, as the company has stopped reporting detailed financials and has stopped answering questions about its performance. And it’s not even clear if Dell will stay out of the low-end printer space for long. (In an email to employees after taking back the CEO reins, Michael Dell said, “In Consumer, I believe the dramatic de-scaling is a mistake. We will focus on return on invested capital (ROIC), cash flow and variable costs. We will have a new product cycle, we’ll fix (customer experience) and we will not run away from a cost fight!” Consumer printers were largely the mistake that Schneider had described.)

    But if Dell is getting its clock cleaned by HP in the notebook space (HP grew notebook sales at 57 percent during the fourth quarter, while Dell grew at 2 percent), its prospects for competing against HP in the printer business — where HP is the market share king — would appear to be a challenge.Lexmark, which is a major printer OEM for Dell, has reported its OEM business has been under significant pressure since last year. Since Dell represents about 15 percent of Lexmark’s revenue, the company is a pretty noteworthy indicator of how Dell’s printing business is doing. Lexmark has also been a major OEM for IBM, and during Lexmark’s most recent quarterly conference call with financial analysts, CEO Paul Curlander declined to say how IBM’s decision to exit the printing business would impact Lexmark.Dell is Lexmark’s biggest customer, so whether it remains in the business or gets out like IBM, what is said in Lexington in the next few months may reflect very closely on what’s happening in Round Rock.